[Editorial] Tax Reform Needs Principles and Direction

The government's tax policy is a mess. Put simply, it is using methods from yesteryear and it is hard to agree with its priorities.

Such is the case with the announcement that it is going to abolish additional income deductions for one and two person households. The Finance and Economy Ministry says it is "100 percent possible it will pass in the National Assembly," but the ruling party retreated from its position and said the plan is only "one of many." Just recently the soju tax increase was tabled after the government and ruling party were found they were out of step with each other on the issue. It is irresponsible to rashly issue statements about an issue as sensitive as taxation before there has been ample coordination between them. It hurts public confidence in policy and it even makes it only half as effective.

One of course fully agrees with the government's aim of fixing the illogical tax exemption and reduction system. But there are some 226 exemptions and reductions, and the government is not going to win the people's sympathy by suddenly picking out one or two of them for revision without there being some overall blueprints for reform. It would at least be being frank to call the plan a desperate measure to put together the funds for the public welfare policy it decided on last year.

The government has already said it was going to put together a long-term tax reform plan that includes more effective expenditures, fewer illogical reductions and exemptions, and better revenue collection from highly educated professionals and the self-employed. Those are all things that must be pursued with a view for the long-term. It is of the greatest urgency that it determines a reasonable sequence of policy priorities and formulate concrete implementation strategies for each area. It could easily end up being like "setting out to draw a tiger but ending up drawing a cat" if it reaches out to revise this and that based only on budgetary needs that come up from time to time.

The key element of tax policy is balanced taxation. People who dutifully pay their taxes do so believing that tax revenue is being used to benefit them. But the reality in Korea is that there is no way to prevent legal tax evasion by high-income professionals and self-employed individuals, and the wealthy evade the net of the law using all sorts of methods, including keeping their money in separate places. Revenue from the "comprehensive income tax" is not even half of "working income tax" paid by salarymen. The government needs to realize that making the burden of taxes fair for everyone is the essential first step in making the whole tax system more rational.

Socioeconomic disparity and the low birth rate are not concerns that will stay with any one single government for the duration of its time in office. They are issues that require an accurate assessment of the situation and adequate examination of the effects that policy is having, something that requires a lot of time and work. The W30 trillion the Participatory Government has budgeted until the year 2010 is just the beginning. The right way to go about this will be to seek a consensus from the public about the long-term and financial planning and worry less about immediate budgetary concerns. That is why the prime minister's office recently formed a joint task force on the low birth rate and ageing. Tax reform needs to begin with established principles and direction.

The Hankyoreh, 3 February 2006.

[Translations by Seoul Selection]